TOKUYAMA CORPORATION

TOKUYAMAAnnual CORPORATION Report 2012 Year ended March 31, 2012 Tokuyama traces its roots back to 1918, when it began producing soda ash (sodium carbonate), one of the basic materials used in various industries.

While adding various chemicals to our product lineup, we have grown to incorporate diverse businesses covering a wide range of products including organic and inorganic chemicals, plastics, cement/building materials, electronic materials, and materials used in the medical field. In this way, Tokuyama has continued to serve industry and a variety of markets for more than 90 years.

Tokuyama aims to be a thoroughly unique company, characterized by technology, thereby achieving sustainable corporate growth. At the same time, we strive to become a meaningful presence in society, full of originality, and to generate increased corporate value from a medium- to long-term perspective while also practicing a style of management that is both future-oriented and in harmony with society.

PROFILE CONTENTS

1 Consolidated Financial Highlights 20 Notes to Consolidated Financial Statements 2 At a Glance 53 Independent Auditor’s Report

4 Message from the President 36 Directory 9 Financial Review 73 Major Subsidiaries and Affiliates 41 Consolidated Balance Sheets 38 Executive Team 61 Consolidated Statements of Income 39 Main Products 71 Consolidated Statements of Comprehensive Income 39 Corporate Data 81 Consolidated Statements of Changes in Net Assets 19 Consolidated Statements of Cash Flows

CAUTIONARY NOTES: FORWARD-LOOKING STATEMENTS This annual report contains information about forward-looking statements related to such matters as the Company’s plans, strategies and business results. These forward-looking statements represent judgments made by the Company based on information available at present and are inherently subject to a variety of risks and uncertainties. The Company’s actual activities and business results could differ significantly from the forward-looking statements due to changes including, but not limited to, those in the economic environment, business environment, demand and exchange rates. CONSOLIDATED FINANCIAL HIGHLIGHTS

Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2012 and 2011

Thousands of Millions of yen Change (%) U.S. dollars

2012 2011 2012/2011 2012

Net sales ¥282,382 ¥289,787 (2.6)% $3,443,681 Operating income 13,721 20,145 (31.9) 167,323 Income before income taxes 14,816 15,550 (4.7) 180,679 Net income 9,351 9,766 (4.2) 114,038

Per share amounts (in yen, U.S. dollars) Net income

Basic 26.87 28.06 (4.2) 0.328

Diluted — — — —

Cash dividends 6.00 6.00 — 0.073

Total assets 501,181 474,708 5.6 6,111,967 Net assets 255,461 247,656 3.2 3,115,378

Capital expenditures 78,281 40,725 92.2 954,641 Depreciation 28,380 31,257 (9.2) 346,098 R&D expenses 11,705 11,469 2.1 142,740

Number of employees 5,506 5,493 — —

Consolidated subsidiaries 48 50 — —

Note: U.S. dollar amounts above and elsewhere in this annual report are converted from Japanese yen, for convenience only, at the rate of ¥82=US$1.

TOKUYAMA CORPORATION 1 AT A GLANCE

Major Products of Group Segment Business Unit Major Direct Products Group Companies Year ended March 31, 2012

CHEMICALS Soda ash and Calcium chloride Soda ash, Calcium chloride Sales Composition

Chlor-alkali Caustic soda, Propylene oxide, Chlorine derivatives

Vinyl chloride Vinyl chloride monomer ■ Vinyl chloride resin【 Shin Dai-ichi Vinyl】 12.7% 26.9% New organic chemicals Isopropyl alcohol (IPA)

Electronic materials Polycrystalline silicon 13.8% ■ Fumed silica SPECIALTY PRODUCTS Fumed silica Fumed silica 【Tokuyama Chemicals (Zhejiang) (China)】 Precipitated silica Precipitated silica (white carbon) ■ Precipitated silica 【Tokuyama Siam Silica (Thailand)】 Active pharmaceutical ingredients (API) Fine chemicals Plastic lens materials for glasses Alminum nitride ε ■ Shapal Aluminum nitride (A N) 【Tokuyama-Dowa Power Materials】 21.6% 25.0% IC chemicals High-purity chemicals for electronics manufacturing Cleaning system Metal-cleaning solvents ■ Microporous film NF Microporous film 【Shanghai Tokuyama Plastics (China)】

■ Ready-mixed concrete CEMENT Ordinary Portland cement 【Ready-mixed concrete companies】 Chemicals Cement Specialty Products ■ Cement / Building materials Other cement 【Tokuyama Tsusho Trading, etc.】 Cement Advanced Components Others Recycling and environment Recycling of waste and by-products

Operating Income Composition ADVANCED COMPONENTS ■ Polypropylene film【 Sun•Tox 】 ■ Ion exchange membranes / Systems【 ASTOM】

■ Clinical analyzers / Laboratory information systems【A&T】 ■ Gas sensors / detectors【 Figaro Engineering】 10.8% 10.1% 9.3% ■ Dental materials / equipment【 Tokuyama Dental】 ■ Plastic window sashes【 Excel Shanon】

OTHERS 15.6%

■Others【 Shunan System Sangyo etc.】 54.2%

2 TOKUYAMA CORPORATION AT A GLANCE

Major Products of Group Segment Business Unit Major Direct Products Group Companies Year ended March 31, 2012

CHEMICALS Soda ash and Calcium chloride Soda ash, Calcium chloride Sales Composition

Chlor-alkali Caustic soda, Propylene oxide, Chlorine derivatives

Vinyl chloride Vinyl chloride monomer ■ Vinyl chloride resin【 Shin Dai-ichi Vinyl】 12.7% 26.9% New organic chemicals Isopropyl alcohol (IPA)

Electronic materials Polycrystalline silicon 13.8% ■ Fumed silica SPECIALTY PRODUCTS Fumed silica Fumed silica 【Tokuyama Chemicals (Zhejiang) (China)】 Precipitated silica Precipitated silica (white carbon) ■ Precipitated silica 【Tokuyama Siam Silica (Thailand)】 Active pharmaceutical ingredients (API) Fine chemicals Plastic lens materials for glasses Alminum nitride ε ■ Shapal Aluminum nitride (A N) 【Tokuyama-Dowa Power Materials】 21.6% 25.0% IC chemicals High-purity chemicals for electronics manufacturing Cleaning system Metal-cleaning solvents ■ Microporous film NF Microporous film 【Shanghai Tokuyama Plastics (China)】

■ Ready-mixed concrete CEMENT Ordinary Portland cement 【Ready-mixed concrete companies】 Chemicals Cement Specialty Products ■ Cement / Building materials Other cement 【Tokuyama Tsusho Trading, etc.】 Cement Advanced Components Others Recycling and environment Recycling of waste and by-products

Operating Income Composition ADVANCED COMPONENTS ■ Polypropylene film【 Sun•Tox 】 ■ Ion exchange membranes / Systems【 ASTOM】

■ Clinical analyzers / Laboratory information systems【A&T】 ■ Gas sensors / detectors【 Figaro Engineering】 10.8% 10.1% 9.3% ■ Dental materials / equipment【 Tokuyama Dental】 ■ Plastic window sashes【 Excel Shanon】

OTHERS 15.6%

■Others【 Shunan System Sangyo etc.】 54.2%

TOKUYAMA CORPORATION 3 MESSAGE FROM THE PRESIDENT

Our Centennial Vision is

the Cornerstone of

a Revitalized Tokuyama Group

Kazuhisa Kogo President

Please provide us with your review of the previous Three-Year Management Plan. Our previous Three-Year Management Plan, which began in fiscal 2008 (the year ended March 31, 2009), represented our first step toward achieving our Centennial Vision. In addition to launching the Malaysia Project to lay a robust foundation for future growth and restructuring our cement business, we carried out some of our appropriate measures as initially planned to attain a measure of progress and success. Regrettably, however, we were unable to achieve the numerical targets established at the outset of the Plan. This was largely attributable to dramatic deterioration in market conditions and our business environment following the Lehman Brothers shock and intense polycrystalline silicon price competition. In our chemicals and cement businesses geared toward addressing demand in Japan, rising energy costs and appreciation in the value of the yen leave little or no hope of substantive growth. Against this backdrop, we

4 TOKUYAMA CORPORATION MESSAGE FROM THE PRESIDENT

are confronted by several issues that require immediate attention including the creation of new businesses, the nurturing of highly profitable businesses, and the establishment of a sales and marketing system that boasts strong proposal capabilities. With this in mind, fiscal 2011, ended March 2012, was positioned as a year in which the Tokuyama Group would take all preparatory steps to review its medium- to long-term growth strategies. In addition to reassessing our business strategies, we adopted a selection and concentration approach toward development projects, adhered strictly to a policy of rationalization in our production fields, and worked diligently to improve productivity.

What are the key points to achieving the targets of the new Three-Year Management Plan? There are aspects of our Centennial Vision that perhaps place undue emphasis on our quest toward an ideal image. We therefore took steps to go back to the starting point and assess exactly what is required to achieve our targets. Drawing on our conclusions, we have put in place a new Three-Year Management Plan that focuses on three growth strategies. Moving forward, we will endeavor to establish a support structure that is capable of “strengthening strategically growing businesses,” “restructuring businesses in which we aim to improve profitability,” and “bolstering international competitiveness.” Among these overarching growth strategies, steadily carrying out our Malaysia Project is a key priority in strengthening strategically growing businesses. We will look carefully to identifying the key construction, operation and sales factors required for success as we work toward the start of the first phase of operation in June 2013 and the second phase in April 2014. Through these means, energies will be channeled toward producing polycrystalline silicon of high purity and at low cost for use in solar cells. By engaging in highly competitive polycrystalline silicon activities, we are taking steps to position this business as a mainstay earnings pillar. In addition, to nurture second and third pillars that can support the polycrystalline silicon business and provide complementary sources of profits is considered a pressing need. With this in mind, we will redouble our efforts to bring promising new products to market. In creating new businesses, we will, for example, quickly establish a mass production technology for single crystal sapphire wafers. Expectations are also high that the establishment in fiscal 2013 of the liquid hydrogen business and new businesses in the recycling and environment field will help further boost earnings. The Tokuyama Group recognizes that by undertaking to reform the structure of its management and enhancing its corporate culture, it will be better placed to implement its growth strategies in the new Three- Year Plan. In pushing forward the aforementioned structural reform, we have separated and bolstered the supervisorial and business execution functions with the aims of expediting our decision making and putting in

TOKUYAMA CORPORATION 5 Malaysia Project 1st Phase 2nd Phase LOCATION Samalaju Industrial Park in Sarawak, Malaysia ANNUAL PRODUCTION CAPACITY 6,200 tonnes 13,800 tonnes PRODUCTION METHOD Siemens method TARGET USAGE OF POLYCRYSTALLINE SILICON Solar cells SCHEDULE (START OF OPERATIONS) June 2013 April 2014

place a management structure that is capable of responding swiftly to changes in the Group’s operating environment. At the same time, we will endeavor to develop a bright and vibrant workplace environment in which each and every employee can push the limits of his or her potential and skills. This is in fact the ultimate in corporate culture reform. Under the guidance of the Venture Spirit & Innovation Project, created in 2011 as a task force to help realize the Group’s Centennial Vision, all Tokuyama Group employees are working in unison to bring about and implement comprehensive corporate reform. Building on these endeavors, we are fostering an environment that will allow employees to steadfastly stride forward beyond the scope of their allotted duties and tasks. As I have mentioned, we will push forward efforts to strengthen our organizational functions and change our corporate culture by adopting both top-down and bottom-up approaches.

In carrying out these growth strategies that emphasize change, what is your ideal image of the Company? Our standing as a company that can win over the competition is in jeopardy if we are unable to expand our business portfolio and bring about corporate growth. Since the Lehman Brothers shock, the Company’s net sales have remained flat at around ¥300 billion. Over the same period, the operating margin (the ratio of operating income to net sales) has steadily declined. At the same time, our overseas net sales ratio is between 20 and 24%

6 TOKUYAMA CORPORATION Supply-demand Forecast of Polycrystalline Silicon

Supply capacity / Demand (tonnes) *Tokuyama estimate

500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2012 2013 2014 2015 2016 2017

Demand for Demand for Supply capacity of Supply capacity of lower-purity polysilicon high-purity polysilicon lower-purity polysilicon high-purity polysilicon

against a domestic chemical industry average of around 40%. Taking these factors into consideration, it is imperative that we break free from a product portfolio that is dependent on domestic demand and accelerate efforts to ensure a structure and systems that are capable of excelling on the global stage. I am convinced that genuine change, which includes globalization, will come about when the Company boasts net sales in excess of ¥500 billion and the overseas net sales ratio over 50%. In this regard, our Centennial Vision is indeed the cornerstone of a revitalized Tokuyama Group.

Please provide us with your views on fiscal 2012 (the year ending March 2013), the first year of the new Three-Year Management Plan, and details of initiatives that you plan to implement. In the Specialty Products segment, the U.S., China and Japan, three countries that are aggressively introducing renewable energy, are expected to drive the solar cell market forward. Polycrystalline silicon for use in semiconductors is also projected to benefit from robust trends in emerging countries particularly in the area of smart phones. This is in turn anticipated to offset the decline in personal computer and LCD markets. Under these circumstances, we will work diligently to boost the presence and standing of our brand and reinforce profitability by steadily executing the Malaysia Project while increasing production capacity and improving operational processes at the Tokuyama Factory. In the Chemicals segment, we continue to confront difficult operating conditions. Due largely to the downturn

TOKUYAMA CORPORATION 7 in the rate of economic growth in China from the second half of last year, vinyl chloride resin exports have declined. This has in turn led to a drop in operating rates at electrolysis facilities and, as a result, increasingly tight caustic soda supply and demand in Japan. Vinyl chloride monomer activities are faring little better owing to persistent weak conditions. In this regard, orders from China and Southeast Asia remain subdued. Moving forward, we are determined to review our logistics and sales structure in fiscal 2012, and to revise caustic soda prices. In the Cement segment, there are signs of a recovery in demand particularly from the Kanto and Kansai areas including redevelopment projects in Osaka. After a continuous period of decline that has extended for more than 15 years, there is sense that the market may have turned a corner. Unfortunately, demand in western Japan, Tokuyama’s principal sales area, is expected to remain weak. As a result, we will continue our policy of comprehensive rationalization, take steps to revise sales prices, and work to further improve profits. Our energies in the Advanced Components segment will be directed toward increasing revenues through the development of existing and new markets. From a profit perspective, we will endeavor to boost earnings by actively cutting costs. The Excel Shanon group will continue to promote repair and replacement work for affected customers in an effort to address outstanding issues on a building by building basis and restore its reputation and trust.

Can you provide us with your thoughts on returning profits to shareholders? Tokuyama positions the return of profits to shareholders as a key management priority. The Company maintains the basic policy of providing continuous, stable cash dividends while taking into consideration the importance of a sound financial position and robust profit structure. In the fiscal year under review, we paid an interim cash dividend of ¥3 per share and a period-end cash dividend of ¥3 per share for an annual cash dividend of ¥6 per share. Moving forward, and from the fiscal year ending March 31, 2013, we will implement our new Three-Year Management Plan and work to improve earnings in an effort to ensure the payment of continuous, stable cash dividends. As we work toward achieving our established goals, we kindly request your continued support and understanding.

Kazuhisa Kogo President June 2012

8 TOKUYAMA CORPORATION Financial Review FINANCIAL SECTION

INCOME ANALYSIS NET SALES

(Billions of yen) In the year ended March 31, 2012, the worsening debt 350 350 crisis in Europe acted as a hindrance to the economic 307 301 280 273 290 282 recovery in developed countries while the growth rates 280 of China and other emerging countries showed signs of 210 210 slowdown. Reflecting these factors, the global 140 economy exhibited a relatively weak trend. 140 The Japanese economy started out under a severe 70 economic environment at the beginning of the fiscal 70 year under review. For example, restrictions occurred in 0 0 corporate production activities due to the serious 2008 2009 2010 2011 2012 impact of the Great East Japan Earthquake. Although the Japanese economy showed signs of recovery in the By business segment, Chemicals segment sales second half of the fiscal year owing to the increased 7.7% year on year to ¥85,274 million reconstruction of supply chains and expectations of (US$1,040 million), sales in the Specialty Products reconstruction demand, its future trend remains segment fell 18.3% year on year to ¥79,080 million uncertain due chiefly to the prolonged strong yen and (US$964 million), sales recorded by the Cement instability of employment. segment increased 6.1% year on year to ¥68,421 Under such circumstances, the Tokuyama Group million (US$834 million), and sales in the Advanced revised selling prices and undertook rationalization Components segment increased 0.7% year on year to efforts. However, our efforts could not absorb price ¥43,581 million (US$531 million). increases in raw materials and fuels such as coal, Despite a rise in prices of ethylene and propylene, ethylene and propylene, and moreover the business both of which are main raw materials for the environment for polycrystalline silicon, which is our Company’s petrochemicals, cost of sales decreased pillar of profit, deteriorated further. As a result, the 2.8% compared with the previous fiscal year, to Tokuyama Group reported lower operating income on ¥203,763 million (US$2,485 million), owing chiefly to lower sales compared with the previous fiscal year. decreased polycrystalline silicon sales volume and a Consolidated net sales for fiscal 2012 amounted to decrease in depreciation expenses of polycrystalline ¥282,382 million (US$3,444 million), a decrease of silicon manufacturing facilities. 2.6% compared with the previous fiscal year, chiefly SG&A expenses increased 8.3% compared with the due to damage to supply chains caused by the Great previous fiscal year, to ¥64,898 million (US$791 East Japan Earthquake and decreased sales volume of million), due mainly to an increase in depreciation polycrystalline silicon arising mainly from the slumping expenses arising from the start of operations at a new solar cell and semiconductor markets caused by the information line of business (LOB) system. global recession.

TOKUYAMA CORPORATION 9 Operating income decreased 31.9% year on year to calculated in an appropriate way, we recorded net ¥13,721 million (US$167 million), due mainly to lower income of ¥9,351 million (US$114 million), a fall of sales volume of polycrystalline silicon and increased ¥414 million compared with net income of ¥9,766 depreciation expenses arising from the start of million in the previous fiscal year. Net income per share operations at the new information LOB system. The was ¥26.87 (US$0.328), down from net income per operating margin (the ratio of operating income to net share of ¥28.06 in the previous fiscal year. Dividends sales) was 4.9%, a decrease of 2.1 percentage points per share were ¥6.00 (US$0.073). compared with the figure of 7.0% recorded in the NET INCOME (LOSS) previous fiscal year. (Billions of yen) 20 OPERATING INCOME 18.9 20 (Billions of yen) 15 15 40 40 10 9.8 9.4 35.3 10 7.5 32 5 32 5 24 22.7 0 24 20.1 0 16 16.5 –5 13.7 16 -5 –5.6 –10 8 -10 2008 20098 2010 2011 2012 0 0 2008 2009 2010 2011 2012 Return on equity (ROE) and return on assets (ROA) were 3.8% and 1.9%, respectively, compared with 4.1% In other income and expenses, the Company and 2.1% in the previous fiscal year. reported net other income of ¥1,095 million (US$13 RETURN ON EQUITY million), owing chiefly to a decrease in foreign exchange (%) losses. 10 9.7 10 Income before income taxes was ¥14,816 million (US$181 million), a fall of ¥734 million compared with income before income taxes of ¥15,550 million in the 5 4.1 3.5 3.8 5 previous fiscal year. After deducting income taxes etc.

0 0

–5 –2.9 -5 2008 2009 2010 2011 2012

10 TOKUYAMA CORPORATION FINANCIAL SECTION

SEGMENT INFORMATION This segment’s net sales decreased 18.3% year on year to ¥79,080 million (US$964 million) and operating The Tokuyama Group is composed of the parent income decreased 37.7% year on year to ¥10,216 company, Tokuyama Corporation (“the Company”), 52 million (US$125 million). subsidiaries and 32 affiliated companies. The Group’s Sales of polycrystalline silicon decreased due mainly operations are divided into the five business segments to damage to supply chains caused by the Great East of Chemicals, Specialty Products, Cement, Advanced Japan Earthquake, a drop in solar cell prices, the Components, and Others. For accounting purposes, 48 slumping semiconductor market and the strong yen. On of the Company’s subsidiaries are consolidated, while the profit front, despite the decrease in depreciation eight affiliates are accounted for using the equity expenses of manufacturing facilities that commenced method. operations in the year ended March 2010, operating income decreased due mainly to higher raw material Chemicals and fuel prices as well as the aforementioned factors. The Chemicals segment includes the operations of Fumed silica sales decreased due chiefly to the three consolidated subsidiaries. strong yen and decreased sales volume of its Segment net sales increased 7.7% year on year to application to polishing material used for CMP for ¥85,274 million (US$1,040 million), while operating semiconductor wafers, which arose from the slumping income declined 21.2% year on year to ¥1,901 million semiconductor market. (US$23 million). Sales of the segment’s other products such as Net sales in this segment increased, owing mainly to aluminum nitride and high-purity chemicals for the revision of selling prices of petrochemicals such as electronics manufacturing declined due mainly to the vinyl chloride resin and PO (propylene oxide) in slumping semiconductor and LCD markets and the response to higher naphtha prices, and an increase in strong yen. sales volume of caustic soda, vinyl chloride resin and other products resulting from the temporary Cement suspension of competitors’ operations caused by the The Cement segment comprises the operations of 14 Great East Japan Earthquake. On the profit front, consolidated subsidiaries and two equity-method despite the above-mentioned positive factors, affiliates. operating income declined, reflecting a decline in vinyl Segment net sales increased 6.1% year on year to chloride monomer export profitability arising from ¥68,421 million (US$834 million) and operating sluggish demand for vinyl chloride resin in Asia due to income increased 41.2% year on year to ¥2,938 million the global recession and the strong yen; lower profit of (US$36 million). soda ash arising from higher prices of raw materials In the cement business, sales were firm on the back and fuels; and other factors. of solid domestic private-sector demand and sales volume of cement increased. In addition, we revised Specialty Products selling prices in response to the rising prices of raw The Specialty Products segment includes the materials and fuels. In the recycling and environment operations of six consolidated subsidiaries and one business, sales increased due to the revision of unit equity-method affiliate. prices for accepting wastes from outside the Company.

TOKUYAMA CORPORATION 11 On the profit front, the segment reported an Gas sensor sales at Figaro Engineering Inc. declined increase in operating income owing to the due mainly to the strong yen, and Excel Shanon aforementioned factors and the fundamental structural Corporation reported soft sales due to repair and reform of its cement operations centered on the replacement work arising from the plastic window sash restructuring of our production structure and the (fireproof and fire-resistant grade) problem. Despite rationalization of our logistics and sales structure, such negative factors, the segment reported an which were launched in the previous fiscal year. increase in net sales owing chiefly to higher sales of clinical analyzers and laboratory information systems Advanced Components at A&T Corporation and increased sales of ASTOM The Advanced Components segment includes the Corporation. operations of 13 consolidated subsidiaries and two On the profit front, the segment reported a decrease equity-method affiliates. in operating income due mainly to lower profit at Sun- Net sales in this segment increased 0.7% year on Tox Co., Ltd. arising from higher raw material and fuel year to ¥43,581 million (US$531 million) and operating prices and increased distribution costs, as well as the income decreased 13.7% year on year to ¥1,746 aforementioned negative impact of the sales decline of million (US$21 million). Figaro Engineering Inc.

FINANCIAL POSITION AND LIQUIDITY decrease in marketable securities. Current liabilities rose 5.8% to ¥102,773 million (US$1,253 million). This As of March 31, 2012, total assets amounted to mainly reflected an increase in trade notes and ¥501,181 million (US$6,112 million), an increase of accounts payable. As a result, the current ratio was ¥26,473 million from the figure of ¥474,708 million at down to 2.09 times, from 2.25 times at the previous the previous fiscal year-end. fiscal year-end. Investments and other assets fell 22.9% over the TOTAL ASSETS previous fiscal year-end to ¥60,068 million (US$733 (Billions of yen) 500 501 million). This was primarily due to a decrease in trust in 475 500 453 deposits. 400 383 404 Property,400 plant and equipment increased 27.0% in comparison with the previous fiscal year-end to 300 300 ¥226,314 million (US$2,760 million). This was due 200 chiefly to an200 increase in construction in progress. As of March 31, 2012, total liabilities amounted to 100 ¥245,720 million100 (US$2,997 million), an increase of 0 8.2% compared with the previous fiscal year-end figure 0 2008 2009 2010 2011 2012 of ¥227,052 million. The main contributory factors were the issue of corporate bonds and an increase in Current assets decreased 1.8% compared with the long-term debt. Interest-bearing debt increased 17.8% previous fiscal year-end to ¥214,800 million from ¥126,220 million at the previous fiscal year-end (US$2,620 million). This was due primarily to a to ¥148,668 million (US$1,813 million).

12 TOKUYAMA CORPORATION FINANCIAL SECTION

Minority interests in consolidated subsidiaries NET ASSETS decreased 4.1% from ¥6,460 million as of the previous (Billions of yen) fiscal year-end to ¥6,198 million (US$76 million). Net 300 300 assets increased 3.2% compared with the previous 248 255 240 244 fiscal year-end, from ¥247,656 million to ¥255,461 240 206 190 million (US$3,115 million). This was due chiefly to an 180 180 increase in retained earnings. The ratio of 120 shareholders’ equity to total assets was 49.7%, down 120 from 50.8% at the previous fiscal year-end. The 60 amount of net assets per share was ¥716.39 60 (US$8.736), up from ¥693.18 at the previous fiscal 0 0 year-end. 2008 2009 2010 2011 2012

CAPITAL EXPENDITURES previous fiscal year’s figure of ¥40,725 million.

Capital expenditures totaled ¥78,281 million (US$955 million), an increase of 92.2% compared with the

CASH FLOWS Net cash provided by financing activities equaled ¥20,792 million (US$254 million). This was primarily Net cash provided by operating activities totaled attributed to proceeds from long-term debt of ¥17,466 ¥27,060 million (US$330 million). Principal items million (US$213 million), up from ¥8,872 million in the included depreciation expenses of ¥28,380 million previous fiscal year, repayments of long-term debt of (US$346 million), down from ¥31,257 million in the ¥8,238 million (US$100 million) (¥4,057 million in the previous fiscal year. previous fiscal year), and proceeds from the issue of Net cash used in investing activities totaled ¥57,667 corporate bonds of ¥20,000 million (US$244 million) million (US$703 million). Major contributory factors (¥20,000 million in the previous fiscal year). were payments for purchases of property, plant and As a result of the above, cash and cash equivalents equipment, from ¥21,728 million in the previous fiscal decreased by ¥10,147 million (US$124 million) year to ¥44,237 million (US$539 million), and compared with the previous fiscal year-end, to ¥58,477 payments for purchases of money held in trust of million (US$713 million). ¥22,465 million (US$274 million) (¥69,896 million in the previous fiscal year).

TOKUYAMA CORPORATION 13 Consolidated Balance Sheets

Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2012 and 2011

Thousands of Millions of yen U.S. dollars (Note 2) ASSETS 2012 2011 2012 Current assets: Cash in hand and deposits at bank ¥ 32,677 ¥ 28,324 $ 398,495 Time deposits 986 984 12,024 Short-term investments 310 921 3,781 Marketable securities (Note 5, Note 19) 25,800 40,300 314,634 Receivables: Trade notes and accounts 69,455 74,891 847,015 Others 7,649 3,420 93,274 Less allowance for doubtful accounts (240) (248) (2,927) 76,864 78,063 937,362

Inventories (Note 6) 48,393 36,305 590,156 Trust in deposits 26,431 30,254 322,335 Deferred tax assets (Note 8) 1,737 2,426 21,185 Other current assets 1,602 1,113 19,536 Total current assets 214,800 218,690 2,619,508

Property, plant and equipment (Note 7): Land 34,537 35,026 421,188 Buildings and structures 106,569 104,538 1,299,619 Machinery and equipment 478,945 475,601 5,840,797 Construction in progress 81,095 23,056 988,963 Others 1,331 1,123 16,228 702,477 639,344 8,566,795 Less accumulated depreciation (476,163) (461,212) (5,806,868) 226,314 178,132 2,759,927

Investments and other assets Investment securities (Note 5) 21,634 21,040 263,829 Investments in unconsolidated subsidiaries and affiliates 4,552 4,718 55,509 Long-term receivables 3,907 3,997 47,640 Prepaid pension cost 6,946 — 84,703 Less allowance for doubtful accounts (432) (270) (5,272) Intangible assets 8,291 9,490 101,104 Trust in deposits 7,728 23,407 94,241 Deferred tax assets (Note 8) 3,385 5,617 41,282 Goodwill 216 — 2,629 Others 3,840 9,887 46,867 60,067 77,886 732,532 Total assets ¥ 501,181 ¥ 474,708 $ 6,111,967

See notes to consolidated financial statements

14 TOKUYAMA CORPORATION FINANCIAL SECTION

Thousands of Millions of yen U.S. dollars (Note 2) LIABILITIES AND NET ASSETS 2012 2011 2012 Current liabilities: Short-term bank loans (Note 6) ¥ 8,474 ¥ 10,194 $ 103,346 Commercial papers 4,000 4,000 48,780 Current portion of long-term debt (Note 6) 12,191 13,091 148,671 Deferred tax liabilities (Note 7) 15 7 188 Notes and accounts payable: Trade notes and accounts 41,119 35,196 501,446 Others 14,477 12,702 176,559 55,596 47,898 678,005 Accrued income taxes (Note 7) 1,112 3,143 13,567 Accrued expenses 5,843 6,082 71,257 Guarantee deposits received from dealers 5,061 5,174 61,722 Other current liabilities 10,481 7,579 127,796 Total current liabilities 102,773 97,168 1,253,332

Long-term liabilities: Long-term debt, less current portion (Note 6) 123,113 98,156 1,501,384 Accrued retirement and severance benefits (Note 8) 1,051 1,041 12,818 Deferred tax liabilities (Note 7) 256 277 3,120 Allowance for loss on compensation for building materials 2,444 13,221 29,803 Other long-term liabilities 16,083 17,189 196,132 Total long-term liabilities 142,947 129,884 1,743,257 Total liabilities 245,720 227,052 2,996,589

Contingent liabilities (Note 19)

Shareholders’ equity (Note 14): Common stock, ¥50 par value: Authorized: 700,000,000 shares Issued: 349,671,876 shares 53,459 53,459 651,939 Additional paid-in capital 57,670 57,670 703,295 Retained earnings 138,041 130,792 1,683,423 Less treasury stock, at cost (1,417) (1,414) (17,275) Total shareholders’ equity 247,753 240,507 3,021,382 Valuation, translation adjustments and others (Note 3): Unrealized holding gains on available-for-sale securities 3,965 3,647 48,356 Foreign currency translation adjustments (2,966) (2,958) (36,178) Deferred hedge profit and loss 511 — 6,227 Total valuation, translation adjustments and others 1,510 689 18,405 Minority interests in consolidated subsidiaries: 6,198 6,460 75,591 Total net assets 255,461 247,656 3,115,378

Total liabilities and net assets ¥ 501,181 ¥ 474,708 $ 6,111,967

See notes to consolidated financial statements

TOKUYAMA CORPORATION 15 Consolidated Statements of Income

Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2012, 2011 and 2010

Thousands of Millions of yen U.S. dollars (Note 2) 2012 2011 2010 2012 Net sales ¥ 282,382 ¥ 289,787 ¥ 273,155 $ 3,443,681 Cost of sales 203,764 209,714 196,490 2,484,920 Gross profit 78,618 80,073 76,665 958,761

Selling, general and administrative expenses (Note 10) 64,897 59,928 60,181 791,438 Operating income 13,721 20,145 16,484 167,323

Other income (expenses): Interest and dividend income 588 606 605 7,170 Interest expenses (2,047) (1,817) (1,758) (24,958) Loss from disposal of property, plant and equipment (796) (695) (474) (9,706) Impairment loss on fixed assets (160) (223) (341) (1,949) Gain on sale of marketable and investment securities — 1,721 1,584 — Loss on write-down of marketable and investment securities (64) (163) (12) (784) Foreign exchange gain (loss) (478) (1,889) 294 (5,824) Seconded employee labor cost (317) (309) (314) (3,863) Gain (loss) on changes in retirement benefit plans(Note 9) — — — — Costs of idle operations (999) (831) (997) (12,180) Equity in earnings of unconsolidated subsidiaries and affiliates 287 631 826 3,504 Provision for loss on compensation for building materials 0 (700) (1,000) 0 Other-net 5,081 (926) (2,033) 61,946 1,095 (4,595) (3,620) 13,356 Income (loss) before income taxes 14,816 15,550 12,864 180,679

Income taxes (Note 7): Current 2,003 5,054 3,789 24,431 Deferred 2,879 276 1,614 35,102 4,882 5,330 5,403 59,533 Minority interests (583) (454) (3) (7,108) Net income (loss) ¥ 9,351 ¥ 9,766 ¥ 7,458 $ 114,038

Yen U.S. dollars (Note 2) 2012 2011 2010 2012 Per share amounts: Net income (loss) Basic ¥ 26.87 ¥ 28.06 ¥ 23.52 $ 0.328 Diluted — — — — Cash dividends 6.00 6.00 6.00 0.073

See notes to consolidated financial statements

16 TOKUYAMA CORPORATION Consolidated Statements of Comprehensive Income

Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2012, 2011 and 2010

Thousands of Millions of yen U.S. dollars (Note 2) 2012 2011 2010 2012 Income before minority interests ¥ 9,934 ¥ 10,220 — $ 121,145 Valuation difference of securities 324 (2,792) — 3,945 Deferred gains or losses on hedges 511 —— 6,227 Foreign currency translation adjustments 206 (948) — 2,515 Share of other comprehensive income of companies accounted for by the equity method (21) (139) — (245) Other comprehensive income 1,020 (3,879) — 12,442 Total comprehensive income 10,954 6,341 — 133,587 Attributable to: Shareholders of Tokuyama Corporation 10,171 5,959 — 124,038 Minority interests ¥ 783 ¥ 382 — $ 9,549

See notes to consolidated financial statements

TOKUYAMA CORPORATION 17 Consolidated Statements of Changes in Net Assets

Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2012, 2011 and 2010

Thousands of Millions of yen U.S. dollars (Note 2) 2012 2011 2010 2012 Common stock Balance at beginning of year ¥ 53,459 ¥ 53,459 ¥ 29,976 $ 651,939 Issuance of common stock — — 23,483 — Balance at end of year ¥ 53,459 ¥ 53,459 ¥ 53,459 $ 651,939

Additional paid-in capital Balance at beginning of year ¥ 57,670 ¥ 57,670 ¥ 34,187 $ 703,295 Issuance of common stock — — 23,483 — Gain on disposal of treasury stock — — — — Balance at end of year ¥ 57,670 ¥ 57,670 ¥ 57,670 $ 703,295

Retained earnings Balance at beginning of year ¥ 130,792 ¥ 123,116 ¥ 117,584 $ 1,595,020 Net income 9,351 9,766 7,458 114,038 Cash dividends paid (2,088) (2,088) (1,866) (25,460) Disposal of treasury stock (1) (2) (1) (14)

Adjustment for changes in consolidated subsidiaries and (13) — (59) (161) affiliates accounted for by the equity method Balance at end of year ¥ 138,041 ¥ 130,792 ¥ 123,116 $ 1,683,423

Less treasury stock, at cost Balance at beginning of year ¥ (1,414) ¥ (1,402) ¥ (1,382) $ (17,242) Net change (3) (12) (20) (33) Balance at end of year ¥ (1,417) ¥ (1,414) ¥ (1,402) $ (17,275)

Unrealized holding gains on available-for-sale securities Balance at beginning of year ¥ 3,647 ¥ 6,434 ¥ 5,379 $ 44,480 Net change 318 (2,787) 1,055 3,876 Balance at end of year ¥ 3,965 ¥ 3,647 ¥ 6,434 $ 48,356

Deferred gains or losses on hedges Balance at beginning of year ¥ — ¥ — ¥ — $ — Net change 511 — — 6,227 Balance at end of year ¥ 511 ¥ — ¥ — $ 6,227

Foreign currency translation adjustments Balance at beginning of year ¥ (2,958) ¥ (1,939) ¥ (2,204) $ (36,074) Net change (8) (1,019) 265 (102) Balance at end of year ¥ (2,966) ¥ (2,958) ¥ (1,939) $ (36,176)

Minority interest in consolidated subsidiaries Balance at beginning of year ¥ 6,460 ¥ 6,268 ¥ 6,218 $ 78,782 Net change (262) 192 50 (3,191) Balance at end of year ¥ 6,198 ¥ 6,460 ¥ 6,268 $ 75,591

See notes to consolidated financial statements

18 TOKUYAMA CORPORATION Consolidated Statements of Cash Flows

Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2012, 2011 and 2010

Thousands of Millions of yen U.S. dollars (Note 2) 2012 2011 2010 2012 Cash flows from operating activities: Income (loss) before income taxes ¥ 14,816 ¥ 15,550 ¥ 12,864 $ 180,679 Adjustments to reconcile net cash provided by operating activities: Depreciation 28,380 31,257 37,484 346,098 Increase in allowance for loss on compensation for building materials (10,778) (6,029) (386) (131,435) Increase (decrease) in provision (289) 714 3 (3,521) Interest and dividend income (588) (606) (605) (7,170) Gain on sale of marketable and investment securities — (1,721) (1,584) — Foreign exchange gain (40) (434) (221) (493) Loss on sale and disposal of property, plant and equipment 1,047 707 619 12,763 Impairment losses on fixed assets 160 223 341 1,949 Equity in earnings of unconsolidated subsidiaries and affiliates (287) (631) (826) (3,504) Interest expenses 2,047 1,817 1,758 24,958 Write-down of marketable and investment securities 64 163 12 784 (Increase) decrease in trade receivables 4,816 96 (11,812) 58,733 (Increase) decrease in inventories (12,616) 4,229 (3,422) (153,856) Increase (decrease) in trade payable 6,298 1,626 3,445 76,810 Increase in other long-term liabilities 705 (4,036) (2,815) 8,601 Other (273) (2,543) 2,862 (3,320) Sub total 33,462 40,382 37,717 408,076 Interest and dividend received 1,047 918 862 12,771 Interest paid (2,034) (1,793) (1,758) (24,800) Income taxes paid (5,415) (2,463) (7,441) (66,043) Net cash provided by operating activities 27,060 37,044 29,380 330,004

Cash flows from investing activities: Increase in time deposits (115) (324) (790) (1,406) Decrease in time deposits 50 297 394 615 Payments for purchases of property, plant and equipment (44,237) (21,728) (34,707) (539,473) Proceeds from sales of property, plant and equipment 123 425 476 1,498 Payments for purchases of intangible assets (2,265) (4,933) (1,497) (27,627) Payments for purchases of investment securities (764) (1,244) (1,489) (9,322) Proceeds from sales of investment securities 2,084 2,772 1,870 25,411 Increase in loans receivable (812) (33) (281) (9,905) Decrease in loans receivable 340 348 406 4,147 Payments for purchases of money held in trust (22,465) (69,896) — (273,958) Proceeds from cancellation of money held in trust 10,780 5,239 — 131,470 Other (386) 568 (850) (4,704) Net cash used in investing activities (57,667) (88,509) (36,468) (703,254)

Cash flows from financing activities: Increase (decrease) in short-term loans (769) 1,855 (218) (9,381) Increase in commercial paper — — 1,600 — Proceeds of long-term debt 17,466 8,872 8,742 212,996 Repayments of long-term debt (8,238) (4,057) (4,045) (100,462) Proceeds from issue of bonds 20,000 20,000 10,000 243,902 Redemption of bonds (5,100) — (15,000) (62,195) Issuance of common stock — — 46,966 — Cash dividends paid (2,051) (2,088) (1,866) (25,017) Cash dividends paid to minority interest (172) (190) (129) (2,099) Increase in treasury stock (4) (14) (21) (48) Other (340) (383) 962 (4,135) Net cash (used in) provided by financing activities 20,792 23,995 46,991 253,561 Effect of exchange rate changes on cash and cash equivalents (250) 67 273 (3,060) Net increase (decrease) in cash and cash equivalents (10,065) (27,403) 40,176 (122,749) Cash and cash equivalents at beginning of the year 68,624 95,945 55,366 836,879 Increase in cash and cash equivalents due to changes of scope of consolidation (82) 82 403 (1,000) Cash and cash equivalents at end of year ¥ 58,477 ¥ 68,624 ¥ 95,945 $ 713,130

See notes to consolidated financial statements TOKUYAMA CORPORATION 19 Notes to Consolidated Financial Statements

Tokuyama Corporation and Consolidated Subsidiaries

1. BASIS OF FINANCIAL STATEMENTS based on their accounting records maintained in conformity with generally accepted accounting principles and practices The accompanying consolidated financial statements have been prevailing in the respective countries of domicile. prepared from accounts and records maintained by Tokuyama Certain items presented in the consolidated financial Corporation (the “Company”) and its subsidiaries. The Company statements filed with the appropriate Local Finance Bureau of and its consolidated domestic subsidiaries have maintained the Ministry of Finance in Japan have been reclassified for the their accounts and records in accordance with the provisions convenience of readers outside Japan. Such reclassifications set forth in the Companies Act (the “Act”) and the Financial have no effect on net income or retained earnings. Instruments and Exchange Act and in conformity with The consolidated financial statements are not intended to accounting principles and practices generally accepted in Japan, present the consolidated financial position, results of which are different from the accounting and disclosure operations and cash flows in accordance with accounting requirements of International Financial Reporting Standards. principles and practices generally accepted in countries and The accounts of consolidated overseas subsidiaries are jurisdictions other than Japan.

2. U.S. DOLLAR AMOUNTS The U.S. dollar amounts are included solely for the convenience of readers outside Japan, and are not intended to imply that the The U.S. dollar amounts included in the consolidated financial assets and liabilities that originated in yen have been or could statements and notes represent the arithmetic results of be readily converted, realized, or settled in U.S. dollars at this or translating Japanese yen to U.S. dollars at the rate of at any other rate. ¥82=US$1, the approximate exchange rate on March 31, 2011.

3. SUMMARY OF SIGNIFICANT ACCOUNTING exchange gains or losses are credited or charged to income as POLICIES incurred. FOREIGN CURRENCY FINANCIAL STATEMENTS CONSOLIDATION: (ACCOUNTS OF OVERSEAS SUBSIDIARIES AND The consolidated financial statements include the accounts of AFFILIATES): the Company and its 48 significant subsidiaries (50 in 2011 and All assets and liabilities are translated into yen at the exchange 49 in 2010). Significant intercompany transactions and rate in effect at the balance sheet date except for shareholders’ accounts have been eliminated in consolidation. equity, which is translated at the historical exchange rates. In total, 15 subsidiaries are consolidated on the basis of their Revenue and expense accounts of the consolidated overseas original fiscal years ended at December 31. Material differences subsidiaries are translated at the average rates of exchange in intercompany transactions and accounts arising from the use prevailing during the year. The resulting translation adjustments of the different fiscal year-end are appropriately adjusted in are shown as “Foreign currency translation adjustments” in net consolidation. assets. Investments in 8 unconsolidated subsidiaries and affiliates CASH AND CASH EQUIVALENTS: (9 in 2011 and 11 in 2010) are accounted for by the equity Cash and cash equivalents include all highly liquid time deposits method. Investments in unconsolidated subsidiaries and with maturities of three months or less, and short-term affiliates not accounted for by the equity method are carried at investments and marketable securities which are readily cost. convertible into cash and have no significant risk of change in The excess of investment cost over equity in net assets value. acquired is amortized on a straight-line basis over five years. FOREIGN CURRENCY TRANSACTIONS: MARKETABLE AND INVESTMENT SECURITIES: Securities are classified into four groups: trading securities, Revenue and expenses items denominated in foreign currencies held-to-maturity debt securities, securities of subsidiaries and are translated into Japanese yen at the rates of respective affiliates, and other securities. Trading securities are stated at transaction dates. Monetary assets and liabilities denominated fair market value, held-to-maturity debt securities at amortized in foreign currencies are translated into yen at the exchange cost, and securities of subsidiaries and affiliates are stated at rate in effect at the balance sheet date and the resulting

20 TOKUYAMA CORPORATION FINANCIAL SECTION

cost. Other securities with a quoted current price are stated at LEASES: fair value, and those without a quoted current price are stated Leased assets related to finance lease transactions that do not at cost, cost being determined by the moving-average method. transfer ownership are depreciated by the straight-line method Net unrealized gains or losses of other securities are stated as using the lease term as the useful life and until the residual “Unrealized holding gains on available-for-sale securities” in value becomes zero. shareholders’ equity after applying tax effect accounting. The With respect to finance lease transactions that do not Company and subsidiaries do not hold trading securities. transfer ownership whose starting date was on or before March INVENTORIES: 31, 2009, the accounting treatment similar to that applicable to ordinary rental transactions continues to be applied. Inventories held for sale in the ordinary course of business are stated at cost determined mainly by the moving-average ALLOWANCE FOR DOUBTFUL ACCOUNTS: method. The balance sheet value of the inventories is The allowance for doubtful accounts of the Company and its determined by write-down based on their decreased profitability. consolidated subsidiaries is provided in amounts sufficient to PROPERTY, PLANT AND EQUIPMENT: cover possible losses on collection. In determining the allowance for doubtful accounts for normal receivables, regard Property, plant and equipment are stated at cost. Depreciation is taken of the historical default rate. With receivables where is mainly computed by the declining-balance method for there is an acknowledged credit risk, allowances for doubtful structures, machinery and equipment, and by the straight-line accounts are provided for taking account of collectability on a method for buildings at rates based on the estimated useful case-by-case basis. lives of assets prescribed by the Corporation Tax Act. The range of estimated useful lives is principally from 2 to 75 years for INCOME TAXES: buildings and structures, and from 2 to 20 years for machinery The tax effects of temporary differences between the carrying and equipment. amounts of assets and liabilities for tax and financial reporting Significant renewals and betterments are capitalized. is recognized as deferred income taxes. The provision for Maintenance expenses are charged to income as incurred. income taxes is computed based on the pretax income included RESEARCH AND DEVELOPMENT EXPENSES: in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities Research and development expenses are charged to income as for the expected future tax consequences of temporary incurred. differences between the carrying amounts of assets and DERIVATIVES AND HEDGE ACCOUNTING: liabilities for financial reporting purposes and the amounts used All derivative financial instruments, except hedging instruments, for income tax purposes. are stated at fair value. For the method of hedge accounting, in ACCRUED RETIREMENT BENEFITS: general, the deferral hedge accounting is applied. Among (i) Employees hedging instruments, Interest rate swaps that fulfill the Recognition of accrued retirement benefits for employees for requirement for preferential treatment are subjected to the the fiscal year under review is based on actual valuation of preferential treatment. The Company uses forward exchange projected benefit obligations and plan assets at the end of the contracts and interest rate swaps in hedging instruments fiscal year. subject to hedge accounting. Prior service costs are charged to income as incurred. The Company utilizes financial derivative transactions only Actuarial differences are amortized by using the straight-line for the purpose of hedging foreign exchange risk arising from method over a period of time within the average remaining normal operating activities and for managing interest rate risks. service period of employees (16 years), from the subsequent The Company does not hold or issue derivatives for dealing or fiscal year when they are incurred. speculative purposes. All derivative transactions are performed (ii) Directors and corporate auditors and controlled by the financial section. Directors in charge Certain consolidated subsidiaries record accrued retirement approve all derivative transactions entered into. benefits for directors and corporate auditors on the basis of the As the counterparties to these derivative transactions are amounts required as of the end of the fiscal year under review limited to major financial institutions with high credit standings, based on internal rules. the Company does not anticipate nonperformance by the counterparties to these agreements, and no material losses are expected.

TOKUYAMA CORPORATION 21 ACCOUNTING FOR REVENUE AND COSTS OF NET INCOME PER SHARE: CONSTRUCTION CONTRACTS: Net income per share is computed by dividing net income (i) Construction contracts in which the outcome of the available to common stockholders by the weighted average construction activity carried out by the end of the fiscal year number of common shares outstanding during each fiscal year. under review is deemed certain during the course of the Diluted net income per share is calculated based on the activity assumption that all diluted convertible bonds were converted at Percentage-of-completion method (The percentage of the beginning of the fiscal year. Diluted net income per share for completion of construction activity is estimated based on the the fiscal years ended March 31, 2012, 2011 and 2010 was not percentage of the cost incurred to the estimated total cost) presented because there was no dilutive effect on any assumed (ii) Construction contracts other than the above conversion of convertible bonds for the fiscal years ended Completed-contract method March 31, 2012, 2011 and 2010.

4. FAIR VALUE INFORMATION Thousands of U.S. dollars Book value Fair value Difference The fair values and net unrealized gains of quoted securities at Held-to-maturity debt March 31, 2012 were as follows: securities: Government securities $167 $167 $— Millions of yen and municipal bonds Book value Fair value Difference Bonds and others ——— Held-to-maturity bonds: Total $167 $167 $— Government securities ¥14 ¥14 ¥— and municipal bonds Thousands of U.S. dollars Bonds and others ——— Acquisition Unrealized Book value Total ¥14 ¥14 ¥— cost gain The other securities: Millions of yen Listed corporate shares $166,091 $240,880 $74,789 Acquisition Book Unrealized Bonds and others ——— cost value gain Total $166,091 $240,880 $74,789 The other securities: Listed corporate shares ¥13,619 ¥19,752 ¥6,133 Thousands of U.S. dollars Bonds and others ——— Book value Total ¥13,619 ¥19,752 ¥6,133 Non-quoted main securities: Held-to-maturity bonds $ — Millions of yen Certificates of deposit 314,634 Book value The other securities 21,774 Non-quoted main securities: Total $336,408 Held-to-maturity bonds ¥ — Certificates of deposit 25,800 The other securities 1,785 Total ¥ 27,585

22 TOKUYAMA CORPORATION FINANCIAL SECTION

5. INVENTORIES

Inventories at March 31, 2012 and 2011 were as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Finished products and merchandise ¥21,562 ¥17,112 $262,948 Work in progress 13,502 8,306 164,663 Raw materials and supplies 13,329 10,887 162,545 Total ¥48,393 ¥36,305 $590,156

6. SHORT-TERM BANK LOANS AND LONG-TERM DEBT

Short-term bank loans at March 31, 2011 represent loans, which principally bear interest at rates ranging from 0.00 % to 6.35 % per annum. A summary of long-term debt at March 31, 2012 and 2011 was as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012

Loans principally from banks and insurance companies, due through 2025 with interest rates ranging from 0.00 percent to 6.35 percent ¥ 85,304 ¥ 76,147 $ 1,040,299

1.36 percent unsecured bonds in yen due May 11, 2011 — 5,000 — 1.60 percent unsecured bonds in yen due March 30, 2012 — 100 — 0.54 percent unsecured bonds in yen due September 9, 2015 5,000 5,000 60,976 0.58 percent unsecured bonds in yen due September 8, 2016 10,000 — 121,951 1.76 percent unsecured bonds in yen due March 10, 2020 10,000 10,000 121,951 1.48 percent unsecured bonds in yen due September 9, 2020 15,000 15,000 182,927 1.37 percent unsecured bonds in yen due September 8, 2021 10,000 — 121,951 ¥ 135,304 ¥ 111,247 $ 1,650,055 Less current maturities (12,191) (13,191) (148,671) ¥ 123,113 ¥ 98,056 $ 1,501,384

TOKUYAMA CORPORATION 23 The aggregate annual maturities of long-term debt at March The aggregate annual maturities of lease obligations at 31, 2012 are summarized as follows: March 31, 2012 are summarized as follows:

Thousands of Thousands of Millions of yen U.S. dollars Millions of yen U.S. dollars Years ending March 31 Years ending March 31 2012 ¥ 12,191 $ 148,671 2012 ¥287 $ 3,497 2013 21,740 265,124 2013 286 3,492 2014 6,547 79,837 2014 181 2,207 2015 13,530 164,994 2015 69 847 2016 10,806 131,775 2016 36 438 Thereafter 70,491 859,654 Thereafter 30 357 ¥135,305 $1,650,055 ¥889 $10,838

Assets pledged as collateral for certain loans and other liabilities at March 31, 2012 and 2011 are summarized as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Pledged Assets Property, plant and equipment ¥17,007 ¥19,833 $207,401 Other 356 385 4,344 ¥17,363 ¥20,218 $211,745

24 TOKUYAMA CORPORATION FINANCIAL SECTION

7. INCOME TAXES The significant differences between the statutory tax rate and effective tax rate for consolidated financial statement The Company and its domestic consolidated subsidiaries are purposes for the fiscal years ended March 31 were summarized subject to a number of income taxes that, in the aggregate, as follows. indicate a statutory tax rate in Japan for the respective fiscal years. Overseas subsidiaries are subject to income taxes of countries where they are domiciled.

2012 2011 Statutory tax rate 40.4% 40.4% Increase (decrease) in income taxes resulting from: Change in valuation allowance allocated to income tax expenses (66.2) 12.1 Permanent difference (2.2) (1.2) Effect of tax credits (1.1) (5.5) Inter-company eliminations of dividends received 3.0 2.1 Inter-company eliminations of allowance for bad debts 27.2 (23.7) Inter-company eliminations of provision for loss on business of subsidiaries and affiliates 28.2 16.3 Utilization of loss carryforward — (3.6) Lower tax rates of overseas consolidated subsidiaries — (2.4) Equity in earnings of unconsolidated subsidiaries and affiliates — (1.6) Other 3.7 1.4 Effective income tax rate 33.0% 34.3%

Significant components of deferred tax assets and liabilities at March 31, 2012 and 2011 were as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Deferred tax assets: Allowance for loss on compensation for building materials ¥ 866 ¥ 5,353 $ 10,559 Eliminated loss on business of subsidiaries and affiliates 586 3,576 7,151 Eliminated allowance for bad debts 2,329 6,761 28,401 Allowance for repairs 1,793 1,888 21,868 Fixed assets 1,408 1,384 17,171 Deficits 8,602 8,600 104,906 Others 2,131 3,863 25,979 Subtotal 17,715 31,425 216,035 Less valuation allowance (7,864) (18,229) (95,897) Total deferred tax assets 9,851 13,196 120,138 Deferred tax liabilities: Unrealized holding gains on the other securities (2,201) (2,446) (26,846) Special depreciation reserve — (492) — Appropriations for advanced depreciation (1,574) (1,795) (19,198) Others (1,225) (703) (14,934) Gross deferred tax liabilities (5,000) (5,436) (60,978) Net deferred tax assets/(liabilities) ¥ 4,851 ¥ 7,760 $ 59,160

TOKUYAMA CORPORATION 25 8. RETIREMENT AND SEVERANCE PLAN The Company and its consolidated domestic subsidiaries may pay, under certain circumstances, extra retirement The Company and its consolidated domestic subsidiaries have allowances when their employees leave the Companies. lump-sum severance benefits plans and defined benefit The Company has a retirement benefit trust. pension plans as vested benefits system (DB scheme). They also have defined contribution pension plans as DC scheme.

Benefit obligations for the fiscal years ended March 31, 2012 and 2011 were as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Project benefit obligation ¥ (20,129) ¥ (19,465) $ (245,470) Fair value of plan assets 20,158 19,860 245,833 Funded status 29 395 363 Unrecognized actuarial loss 5,866 5,466 71,522 Net amount shown on balance sheets 5,895 5,861 71,885 Prepaid pension expense 6,946 6,902 84,703 Accrued retirement and severance benefits ¥ (1,051) ¥ (1,041) $ (12,818)

Benefit costs for the fiscal years ended March 31, 2012 and 2011 were as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Service cost ¥ 853 ¥ 829 $ 10,404 Interest cost 461 482 5,616 Recognized actuarial loss 524 394 6,398 Benefit cost 1,838 1,705 22,418 Other 468 550 5,703 Total ¥ 2,306 ¥ 2,255 $ 28,121

Assumptions used in the actuarial calculation were as follows:

Period allocation method for estimated retirement benefits Straight-line method for the period Discount rate 2.0% Expected return on plan assets 0.0% Period of amortization of prior service cost Charge off all at once Period of amortizing actuarial differences 16 years

The Company is not arised. Period of amortization of net transition asset Consolidated subsidiaries is amortized for 5 years.

26 TOKUYAMA CORPORATION FINANCIAL SECTION

9. LEASES ended March 31, 2011, which were computed by the straight- line method over a period up to the maturity of the relevant (1) Lessee lease contracts with no residual value, amounted to ¥ 55million (i) Finance lease (US$ 669thousand). Lease payments on finance lease contracts that do not transfer If the leases were capitalized, the acquisition cost of assets ownership for the fiscal year ended March 31, 2012 amounted and accumulated depreciation etc. at March 31, 2012 and to ¥ 124million (US$ 1,509 thousand). Lease payments 2011 would be as follows: corresponding to depreciation expenses for the fiscal year

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Machinery, equipment and vehicles ¥ 104 ¥ 140 $ 1,263 Other 477 1,058 5,813 Less accumulated depreciation (460) (954) (5,608) Less accumulated impairment (80) (147) (965) Total ¥ 41 ¥ 97 $ 503

The future lease payments on finance leases at March 31, 2012 and 2011 were as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Due within one year ¥ 86 ¥126 $1,049 Due beyond one year 34 119 419 Total ¥120 ¥245 $1,468

(ii) Operating lease The future lease payments on noncancellable operating lease transactions at March 31, 2012 and 2011 were as follows.

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Due within one year ¥ 491 ¥ 421 $ 5,988 Due beyond one year 1,672 2,163 20,385 Total ¥2,163 ¥2,584 $26,373

TOKUYAMA CORPORATION 27 (2) Lessor (i) Operating lease The future lease payments on noncancellable operating lease transactions at March 31, 2012 and 2011 were as follows.

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Due within one year ¥ 10 ¥ 10 $ 118 Due beyond one year 161 170 1,963 Total ¥171 ¥180 $2,081

10. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the fiscal years ended March 31, 2012, 2011 and 2010 were as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2010 2012 Carriage and shipping ¥25,512 ¥24,672 ¥24,048 $311,117 Salaries and bonuses 9,537 9,266 9,587 116,303 Research and development expenses 10,437 10,229 10,532 127,281 Rent 1,722 1,575 1,606 20,995 Traveling expenses and postage 2,018 1,828 1,763 24,613 Welfare expense 1,695 1,637 1,600 20,676 Other 13,977 10,721 11,045 170,453 Total ¥64,898 ¥59,928 ¥60,181 $791,438

11. DEPRECIATION

Depreciation for the fiscal years ended March 31, 2012, 2011 and 2010 was as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2010 2012 Depreciation ¥28,380 ¥31,257 ¥37,484 $346,098

12. RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses for the fiscal years ended March 31, 2012, 2011 and 2010 were as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2010 2012 Research and development expenses ¥11,705 ¥11,469 ¥11,818 $142,740

28 TOKUYAMA CORPORATION FINANCIAL SECTION

13. IMPAIRMENT LOSS business categories. During the fiscal year ended March 31, 2012, the Group recorded impairment losses for the following The Company’s Group groups its assets mainly according to the asset groups. smallest units independently generating cash flows based on

Thousands of Millions of yen U.S. dollars Use Location Asset category 2012 2012 Machinery and equipment ¥ 8 $ 92 Kuriyama-cho, Manufacturing facilities Tools, furniture and fixtures 4 50 Yubari County, Hokkaido for plastic window sashes Prefecture Others 57 703 Total ¥69 $845

During the fiscal year ended March 31, 2012, because losses in the extraordinary loss. profitability of the abovementioned assets owned by the Excel The recoverable value of these assets was measured based Shanon Group decreased significantly, the book value of these on their net selling value. The book value of the abovementioned assets was written down to the recoverable value, and the assets was written down to a memorandum value. amount of the write-downs was accounted for as impairment

Thousands of Millions of yen U.S. dollars Use Location Asset category 2012 2012 Machinery and equipment ¥84 $1,025 Manufacturing facilities Suzhou Industrial Park, for high-purity chemicals Tools, furniture and fixtures 7 79 China for electronic manufacturing Total ¥91 $1,104

During the fiscal year ended March 31, 2012, because the amount of the write-downs was accounted for as an impairment continuance of the operation of Tokuyama Electronic Materials loss in the extraordinary loss. (Suzhou) Co., Ltd. was made impossible, the book value of its The recoverable value of this asset group was measured assets was written down to the recoverable value, and the based on the net selling value.

14. SHAREHOLDERS’ EQUITY On condition that the total amount of legal reserve and additional paid-in capital remains being equal to or exceeding The “Act” provides that an amount equal to at least 10% of cash 25% of common stock, they are available for distributions and dividends and other cash appropriations shall be appropriated certain other purposes by the resolution of the shareholders’ and set aside as a legal reserve until the total amount of legal meeting. reserve and additional paid-in capital equals 25% of common The legal reserve is included in the retained earnings and is stock. not allowed to show separately in the accompanying consolidated financial statements.

15. ASSET RETIREMENT OBLIGATIONS total liabilities and net assets at the same fiscal year-end, the preparation of an asset retirement obligations schedule was Since the amount of asset retirement obligations at the fiscal omitted. year-end under review represented less than one-hundredth of

TOKUYAMA CORPORATION 29 16. SEGMENT INFORMATION Specialty Products: Polycrystalline silicon, fumed silica, precipitated silica, aluminum nitride, BUSINESS SEGMENT INFORMATION pharmaceutical ingredients and intermediates, plastic lens related (1) Summary of reportable segments materials for glasses, metal washing The reportable segments in the Company Group are defined as solvent, high-purity chemicals for individual units, where separate financial information is electronics manufacturing, environment- available and which are subject to regular review to evaluate related equipment, microporous film their results and decide the allocation of management Cement: Ordinary Portland cement, high early-strength resources by the board of directors of the Company. Portland cement, Portland blast-furnace slag The Company has business divisions by product group, and cement, ready-mixed concrete, cement-type the Company Group conducts business operations through each stabilizer, waste treatment business division devising its comprehensive product strategy Advanced Components: Biaxial-oriented polypropylene film, for domestic and overseas markets. The Company Group also co- extrusion multi-layer film, cast develops business in the field of advanced components through polypropylene film, plastic window a group of subsidiaries that have comprehensive management sashes, clinical analyzes and structure including R&D and are functionally independent. The systems, dental materials and Company has the independent Business Management Div. that equipment, gas sensors, ion takes control of business activities of these subsidiaries. exchange membranes The Company Group is, therefore, composed of segments by product group based on business divisions and the independent (2) Calculation of sales, income/loss, assets and other Business Management Div., and has four reportable segments. financial items by reportable segment “Chemicals,” “Specialty Products,” “Cement,” and “Advanced The accounting treatment methods applied to reportable Components.” segments are identical to those stated in “3. SUMMARY OF Main products etc. of each reportable segment are as SIGNIFICANT ACCOUNTING POLICIES.” follows: Inter-segment sales or transfer are based on market prices. Chemicals: Caustic soda, soda ash, calcium chloride, layered Reportable segment’s income is based on operating income. sodium disilicate, vinyl chloride monomer, polyvinyl chloride resin, propylene oxide, isopropyl alcohol, methylene chloride

Millions of yen Specialty Advanced Corporate or Consoli- 2012 Chemicals products Cement Components Others Total elimination dated 1. Sales Sales to customers ¥ 84,336 ¥ 67,732 ¥ 68,045 ¥ 42,679 ¥ 19,590 ¥ 282,382 ¥ — ¥ 282,382 Inter-segment sales/transfer 938 11,348 376 902 20,748 34,312 (34,312) — Total sales ¥ 85,274 ¥ 79,080 ¥ 68,421 ¥ 43,581 ¥ 40,338 ¥ 316,694 ¥ (34,312) ¥ 282,382 Operating income 1,901 10,216 2,938 1,746 2,034 18,835 (5,114) 13,721 2. Assets Assets ¥ 55,077 ¥ 167,107 ¥ 47,284 ¥ 33,097 ¥ 26,770 ¥ 329,335 ¥ 171,846 ¥ 501,181 Depreciation 4,226 10,773 3,115 1,438 1,056 20,608 7,772 28,380 Impairment loss on fixed assets — 91 — 69 — 160 — 160 Capital expenditures 2,684 64,282 2,372 906 4,706 74,950 3,331 78,281

30 TOKUYAMA CORPORATION FINANCIAL SECTION

Thousands of U.S. dollars Specialty Advanced Corporate or Consoli- 2012 Chemicals products Cement Components Others Total elimination dated 1. Sales Sales to customers $ 1,028,491 $ 825,998 $ 829,817 $ 520,474 $ 238,901 $ 3,443,681 $ — $ 3,443,681 Inter-segment sales/transfer 11,434 138,386 4,589 11,006 253,029 418,444 (418,444) — Total sales $ 1,039,925 $ 964,384 $ 834,406 $ 531,480 $ 491,930 $ 3,862,125 $ (418,444) $ 3,443,681 Operating income 23,185 124,582 35,834 21,295 24,805 229,701 (62,378) 167,323 2. Assets Assets $ 671,666 $ 2,037,887 $ 576,636 $ 403,628 $ 326,460 $ 4,016,277 $ 2,095,690 $ 6,111,967 Depreciation 51,540 131,373 37,982 17,535 12,882 251,312 94,786 346,098 Impairment loss on fixed assets — 1,104 — 845 — 1,949 — 1,949 Capital expenditures 32,726 783,929 28,923 11,046 57,402 914,026 40,615 954,641

Millions of yen Specialty Advanced Corporate or Consoli- 2012 Chemicals products Cement Components Others Total elimination dated Amortization of goodwill ¥— ¥— ¥ 44 ¥5 ¥— ¥ 49 ¥— ¥ 49 Unamortized balance — — 285 4 — 288 — 288

Thousands of U.S. dollars Specialty Advanced Corporate or Consoli- 2012 Chemicals products Cement Components Others Total elimination dated Amortization of goodwill $— $— $ 534 $62 $— $ 596 $— $ 596 Unamortized balance — — 3,470 46 — 3,516 — 3,516

OVERSEAS SALES INFORMATION Overseas sales of the Company and its consolidated subsidiaries for the fiscal years ended March 31, 2012 and 2011 were summarized as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Asia ¥41,816 ¥45,086 $509,957 Others 13,544 16,813 165,169 Total ¥55,360 ¥61,899 $675,126

TOKUYAMA CORPORATION 31 17. DERIVATIVE FINANCIAL INSTRUMENTS improving productivity” based on two basic strategies, “Strengthen strategically growing businesses” and ”Bolster our (1) Management policy on financial instruments international competitiveness.” The Company’s Group raises necessary funds (mainly with bank The Group invests occasional spare cash in financial assets loans and by the issuance of corporate bonds) in line with its with high safety, and raises short-term operating capital with business investment program to implement its growth bank loans and CP (commercial paper). We use derivatives only strategies, such as “Further select and concentrate for to hedge against risks, and have a management policy of not aggressive business expansion,” “Create new businesses for us implementing derivative transactions for speculative purposes. to win in the global markets,” and “Reinforce competitiveness by

(2) Fair value of financial instruments As of March 31, 2012, the book value of financial instruments, their fair value, and the differences between the two were as follows. The financial instruments whose fair value is extremely difficult to estimate are not given in the table below.

Millions of yen Book value Fair value Difference Cash in hand and deposits at bank ¥ 33,663 ¥ 33,663 ¥ — Trade notes and accounts 69,455 69,455 — Marketable securities and Investment securities Marketable securities 25,800 25,800 — Held-to-maturity bonds 14 14 — The other securities 19,751 19,751 — Money held in trust 34,159 34,159 — Long-term receivables 3,907 3,907 — Less allowance for doubtful accounts — — — Total ¥186,749 ¥186,749 ¥ — Trade notes and accounts 41,119 41,119 — Short-term bank loans 8,474 8,474 — Commercial papers 4,000 4,000 — Bonds 50,000 51,180 1,180 Long-term debt 85,305 85,881 576 Total ¥188,898 ¥190,654 ¥ 1,756 Derivatives In which hedge accounting is not applied 80 80 — In which hedge accounting is applied 821 337 (484) Total ¥ 901 ¥ 417 ¥ (484)

32 TOKUYAMA CORPORATION FINANCIAL SECTION

Thousands of U.S. dollars Book value Fair value Difference Cash in hand and deposits at bank $ 410,520 $ 410,520 $ — Trade notes and accounts 847,015 847,015 — Marketable securities and Investment securities Marketable securities 314,634 314,634 — Held-to-maturity bonds 167 167 — The other securities 240,880 240,880 — Money held in trust 416,575 416,575 — Long-term receivables 47,640 47,640 — Less allowance for doubtful accounts — — — Total $2,277,431 $2,277,431 $ — Trade notes and accounts 501,446 501,446 — Short-term bank loans 103,346 103,346 — Commercial papers 48,780 48,780 — Bonds 609,756 624,140 14,384 Long-term debt 1,040,300 1,047,332 7,032 Total $2,303,628 $2,325,044 $ 21,416 Derivatives In which hedge accounting is not applied 981 981 — In which hedge accounting is applied 10,004 4,110 (5,894) Total $ 10,985 $ 5,091 $ (5,894)

18. CONTINGENT LIABILITIES

At March 31, 2012 and 2011 the Company and its consolidated subsidiaries were contingently liable as follows:

Thousands of Millions of yen U.S. dollars 2012 2011 2012 Notes discounted or endorsed ¥221 ¥ 260 $2,694 Loans guaranteed 580 1,083 7,070 Commitments to guarantee 224 288 2,732

19. SUBSEQUENT EVENTS

At the annual shareholders’ meeting of the Company held on June 26, 2012, the appropriation of retained earnings for the fiscal year ended March 31, 2012 was approved as follows:

Thousands of Millions of yen U.S. dollars Cash dividends (¥3.00 per share) ¥1,044 $12,730

TOKUYAMA CORPORATION 33 20. REVISIONS TO THE AMOUNTS OF In accordance with this change, the statutory tax rate used DEFERRED TAX ASSETS AND DEFERRED for calculating deferred tax assets and deferred tax liabilities TAX LIABILITIES DUE TO CHANGES IN THE will change to 37.8% for temporary differences expected to be CORPORATE INCOME TAX RATE resolved during April 1, 2012 to March 31, 2015 and to 35.4% for temporary differences expected to be resolved on or after Effective from the fiscal year starting on or after April 1, 2012, April 1, 2015 from the 40.4% which was previously used. corporate income tax rates are lowered and a special As a result of this change in tax rates, the amount of deferred reconstruction corporate tax is imposed by the promulgation on tax assets (the amount after the deduction of deferred tax December 2, 2011 of two new laws: “The Act for Partial Revision liabilities) decreased by ¥18 million, while the amount of income of the Income Tax Act, etc. for the Purpose of Constructing a taxes-deferred, unrealized holding gains on available-for-sale Taxation System Addressing Changes in the Socio-Economic securities and deferred hedge profit (loss) increased by ¥341 Structure” (Act No. 114 of 2011) and the “Act on Special million, ¥300 million and ¥21 million, respectively. Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction following the Great East Japan Earthquake” (Act No. 117 of 2011).

21. ADOPTION OF THE ACCOUNTING Standard for Accounting Changes and Error Corrections” (issued STANDARD FOR ACCOUNTING CHANGES on December 4, 2009) and its “Implementation Guidance — AND ERROR CORRECTIONS ASBJ Guidance No.24 Guidance on Accounting Standard for Accounting Changes and Error Corrections” (issued on Effective from the fiscal year under review, the Company and its December 4, 2009) to accounting changes and corrections of consolidated domestic subsidiaries have adopted an prior period errors that are made on or after the beginning of the “Accounting Standard — ASBJ Statement No.24 Accounting fiscal year under review.

34 TOKUYAMA CORPORATION Independent Auditor’s Report

Tokuyama Corporation and Consolidated Subsidiaries

TO THE BOARD OF DIRECTORS OF TOKUYAMA CORPORATION

We have audited the accompanying consolidated balance sheet of Tokuyama Corporation and consolidated subsidiaries as of March 31, 2012, and the related consolidated statements of income, comprehensive income, changes in net assets, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen.

Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatements, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in conformity with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tokuyama Corporation and consolidated subsidiaries as of March 31, 2012, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in Japan.

Convenience Translation Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

YAMAGUCHI Audit Corporation Shunan, Japan June 13, 2012

TOKUYAMA CORPORATION 35 Directory

Head Office Tokuyama Chemicals (Zhejiang) Tokuyama Europe GmbH Kasumigaseki Common Gate Co., Ltd. Oststrasse 10, 40211 Düsseldorf West Tower No.555, Yashan West Road, Zhapu, Germany 2-1, Kasumigaseki 3-chome, Development Zone, Zhapu Port, Tel: +49-211-1754480 Chiyoda-ku, Tokyo 100-8983, Japan Jiaxing, Zhejiang China 314201 Fax: +49-211-357379 Tel: +81-3-6205-4832 Tel: +86-573-8552-7887 Email: [email protected] Fax: +81-3-6205-4881 Fax: +86-573-8552-3355 URL: http://www.tokuyama.co.jp/eng/ Tokuyama Asia Pacific Pte. Ltd. Taiwan Tokuyama Corporation 61 Robinson Road Domestic Offices: 21 Shi Jian Road, Hsin Chu Industrial Park, #14-02 Robinson Centre Sendai, Nagoya, Osaka, Hu Kou, Hsin Chu 303, Taiwan, R.O.C. Singapore 068893 Hiroshima, Takamatsu, Fukuoka Tel: +886-3-597-9108 Tel: +65-6533-5258 Fax: +886-3-597-9208 Fax: +65-6533-5256 Research Laboratories: Email: [email protected] Tsukuba, Tokuyama Tokuyama Electronic Chemicals Pte. Ltd. URL: http://www.tokuyama-asia.com/ 21 Gul Road, Singapore 629355 Factories: Tel: +65-6862-1081 Tokuyama Trading (Shanghai) Co., Ltd. Fax: +65-6862-1267 1203, Shanghai International Group Tokuyama Factory Mansion, 511 WeiHai Road, 1-1, Mikage-cho, Shunan-shi, Figaro USA, Inc. Shanghai China 200041 Yamaguchi 745-8648, Japan 121 South Wilke Road, Suite 300 Tel: +86-21-6218-1177 Tel: +81-834-34-2000 Arlington Heights, IL 60005, U.S.A. Fax: +86-21-5382-2894 Fax: +81-834-33-3790 Tel: +1-847-832-1701 Email: [email protected] Fax: +1-847-832-1705 Kashima Factory Email: [email protected] Tokuyama Korea Co., Ltd. 26 Sunayama, Kamisu-shi, URL: http://www.figarosensor.com/ #415 Korea Air City Terminal Bldg. Ibaraki 314-0255, Japan 159-6, Samseong-Dong Tel: +81-479-46-4700 Eurodia Industrie S.A. Gangnam-Gu, Seoul, 135-728, Korea Fax: +81-479-46-1933 Zac Saint Martin, Impasse Saint Martin, Tel: +82-2-517-3851 84120 PERTUIS, France Fax: +82-2-517-3856 Overseas: Tel: +33-4-9008-7500 Email: [email protected] Hantok Chemicals Co., Ltd. Fax: +33-4-9008-7519 19th Fl., KTB Network Bldg, URL: http://www.eurodia.com/ 826-14, Yeoksam-Dong, Gangnam-Gu, Seoul, Korea 135-769 Tokuyama Malaysia Sdn. Bhd. Tel: +82-2-3453-8523 Lot 600, 6th Floor, Wisma Bukit Mata Fax: +82-2-3453-8300 Kuching Jalan Tunku Abdul Rahman 93100 Kuching, Sarawak, Malaysia Tianjin Figaro Electronic Co., Ltd. Tel: +60-82-422-705 No.19, Weishan Road, Fax: +60-82-427-708 Tianjin Economic-Technological Development Area, Tokuyama America Inc. Tianjin China 300457 121 South Wilke Road, Suite 300 Tel: +86-22-6629-7458 Arlington Heights, IL 60005, U.S.A. Fax: +86-22-2532-5908 Tel: +1-847-385-2195 Fax: +1-847-832-1705 Shanghai Tokuyama Plastics Co., Ltd. URL: http://www.tokuyama-a.com/ 138 Xintao Road, Qingpu Industrial Zone, Shanghai China 201707 Tel: +86-21-5970-5669 Fax: +86-21-5970-3756

36 TOKUYAMA CORPORATION Major Subsidiaries and Affiliates

As of March 31, 2012

Capital Ownership Company (millions of yen, local currency in thousands) (%) Scope Chemicals z Shin Dai-ichi Vinyl Corporation 2,000 71 Production and sale of polyvinyl chloride z Sun Arrow Kasei Co., Ltd. 98 100 Production and sale of polyvinyl chloride compounds z Tokuyama Siltech Co., Ltd. 200 100 Production and sale of layered silicate (Category also includes another 4 affiliates)

Specialty Products z Tokuyama Chemicals (Zhejiang) Co., Ltd. RMB351,200 100 Production and sale of fumed silica z Tokuyama-Dowa Power Materials Co., Ltd. 250 65 Production and sale of aluminum nitride z Tokuyama Electronic Chemicals Pte. Ltd. S$11,000 100 Production of solvent for semiconductor base materials z Taiwan Tokuyama Corporation NT$200,000 100 Production and sale of solvent for semiconductor base materials z Tokuyama Malaysia Sdn. Bhd. 76,594 100 Production and sale of polycrystalline silicon z Shanghai Tokuyama Plastics Co., Ltd. RMB85,689 100 Production and sale of microporous film * Hantok Chemicals Co., Ltd. Won4,500,000 50 Production of developers for photolithography (Category also includes another 2 unconsolidated subsidiaries)

Cement z Tokyo Tokuyama Concrete Co., Ltd. 80 92.04 Production and sale of ready-mixed concrete and concrete products z Seibu Tokuyama Ready Mixed Concrete Co., Ltd. 100 100 Production and sale of ready-mixed concrete z Kyushu Tokuyama Ready Mixed Concrete Co., Ltd. 50 100 Production and sale of ready-mixed concrete z Chugoku Ready Mixed Concrete Co., Ltd. 80 52.36 Production and sale of ready-mixed concrete z Tokuyama Tsusho Trading Co., Ltd. 95 100 Sale of cement and ready-mixed concrete z Tokusho Co., Ltd. 40 100 Sale of cement and ready-mixed concrete z Tokushin Co., Ltd. 40 100 Sale of cement and ready-mixed concrete z Kansai Tokuyama Trading Co., Ltd. 80 100 Sale of cement and ready-mixed concrete z Tokuyama Mtech Corporation 50 100 Processing and sale of building materials (Category also includes another 5 consolidated subsidiaries, 1 unconsolidated subsidiary, 2 equity method affiliates and 14 affiliates)

Advanced Components z Sun•Tox Co., Ltd. 1,600 100 Production and sale of plastic films z A&T Corporation 577.6 40.21 Production and sale of diagnostic reagents, analyzers and systems z Figaro Engineering Inc. 99 100 Production and sale of sensor devices z Tianjin Figaro Electronic Co., Ltd. RMB23,670 55.7 Production and sale of sensor devices z Tokuyama Dental Corporation 100 100 Production and sale of dental and medical materials z ASTOM Corporation 450 55 Production and sale of ion-exchange membranes z Eurodia Industrie S.A. EUR1,360 99.99 Sale of ion-exchange membranes and maintenance and leasing of related equipment z Excel Shanon Corporation 495 100 Production, processing and sale of building materials, including plastic window sashes and doors z Tohoku Shanon Co., Ltd. 300 72 Production of plastic window sashes (Category also includes another 4 consolidated subsidiaries, 2 equity method affiliates and 2 affiliates)

Others z Tomitec Co., Ltd. 100 60 Production of plastic molding and moisture absorbing agents, as well as components for gas sensors and office equipments z Tokuyama Asia Pacific Pte.Ltd. S$800 100 Sale of Tokuyama’s products z Tokuyama Europe GmbH €255 100 Sale of Tokuyama’s products z Shunan System Sangyo Co., Ltd. 151 100 Real estate, civil engineering, construction z Tokuyama Logistics Corporation 100 100 Transportation and warehousing z Tokuyama Information Serivce Corporation 20 100 Information processing services z Shunan Bulk Terminal Co., Ltd. 150 65 Warehouse operations for bulk cargoes of coal etc. * Nishinihon Resicoat Co., Ltd. 50 50 Manufacture of metal parts and anti-rust surface coating materials * Tokuyama Polypropylene Co., Ltd. 500 50 Production and sale of polypropylene * Covalent Materials Tokuyama Corporation 1,600 30 Production and sale of ceramics and electrochemical products (Category also includes another 5 consolidated subsidiaries, 1 unconsolidated subsidiary and 4 affiliates) zConsolidated subsidiary *Affiliate accounted for by the equity method

TOKUYAMA CORPORATION 37 Executive Team

As of June 26, 2012

DIRECTORS AUDITORS

Representative Director Shigeki Yuasa Standing Auditor Kazuhisa Kogo Supervision over Corporate Planning Div., General & Isao Aso Personnel Affairs Div., Research & Development Div., Representative Director and Management of Technology Div. Auditor Yoshikazu Mizuno Masaki Akutagawa Supervision over Auditing Dept., Secretarial Dept. Toshiaki Tsuchiya Supervision over Chemicals Business Div., Cement External Auditors Directors Business Div., and all branches Ryuji Hori Tatsuo Segawa Takeru Ishibashi Supervision over Corporate Administration Div., Tetsushi Yamada Independent Business Management Div., Supervision over Tokuyama Factory, Manufacturing and Corporate Social Responsibility Div. Technology Div., and Kashima Factory

Yukio Muranaga External Director Supervision over Specialty Products Business Div. Akio Fujiwara

EXECUTIVE OFFICERS

President and Executive Officer Toyoki Fukuoka Shigetaka Misaka Kazuhisa Kogo General Manager of General & Personnel Affairs Div. Deputy General Manager of Malaysia Project General Manager of Malaysia Project Promotion Div. Promotion Div., General Manager of Polysilicon Katsuyuki Masuno Sales Dept. Senior Managing Executive Officers General Manager of Research & Development Div. Yoshikazu Mizuno Takeshi Nakahara Assistant to the President Hidenori Okamoto General Manager of Corporate Strategic Planning General Manager of Management of Technology Div. Dept. Tatsuo Segawa General Manager of Independent Business Hisashi Yasui Takeo Suzuki Management Div. General Manager of Corporate Administration Div. Deputy General Manager of Tokuyama Factory, General Manager of Steam & Power Generation Managing Executive Officers Hideyoshi Koya Dept. Yukio Muranaga General Manager of Cement Business Div. General Manager of Specialty Products Business Hideki Adachi Div. Executive Officers Deputy General Manager of Cement Business Div., Kanji Sakata General Manager of Cement Manufacturing Dept. Shigeki Yuasa General Manager of R&D Planning Dept. General Manager of Corporate Planning Div. Akihiro Hamada Taishi Kutose Deputy General Manager of Corporate Toshiaki Tsuchiya General Manager of Personnel Dept. Administration Div., General Manager of Chemicals Business Div. General Manager of Management Support Center Osamu Nomura Akira Sanuki General Manager of Manufacturing Technology Div. Masao Fukuoka President of Tokuyama Malaysia Sdn. Bhd. General Manager of Corporate Social Responsibility Naoyuki Usagawa Div. Tetsushi Yamada General Manager of Osaka Branch General Manager of Tokuyama Factory

38 TOKUYAMA CORPORATION Main Products

Chemicals Specialty Products Advanced Components Caustic soda Polycrystalline silicon Biaxial-oriented polypropylene film Soda ash Fumed silica Multilayer co-extrusion films Calcium chloride Aluminium nitride Cast polypropylene films Vinyl chloride monomer Pharmaceutical bulks and intermediates Dental materials Polyvinyl chloride Plastic lens materials Ion-exchange membranes Propylene oxide Methylene chloride for washing metal Medical diagnosis systems Isopropyl alcohol Solvent for semiconductor base materials Gas sensors and gas detection equipments Methylene chloride Microporous film Plastic window sashes

Cement Ordinary Portland cement High early strength Portland cement Blast furnace slag cement Ready-mixed concrete Cement type stabilizer

Corporate Data

As of March 31, 2012

Established: Major Shareholders: February 16, 1918 Number of Shares Percentage of Held (Thousands) Total Shares Capital: Japan Trustee Services Bank, Ltd. (trust account) 24,896 7.16 ¥53,459 million The Master Trust Bank of Japan, Ltd. (trust account) 17,483 5.02 Nippon Life Insurance Company 15,534 4.46 Employees (consolidated): Japan Trustee Services Bank, Ltd. (trust account 9) 11,972 3.44 5,506 The Yamaguchi Bank, Ltd. 8,246 2.37 Meiji Yasuda Life Insurance Company 7,442 2.14 Shares Authorized: The Nomura Trust and Banking Co., Ltd. 7,429 2.14 700,000,000 The Bank of Tokyo-Mitsubishi UFJ, Ltd. 7,095 2.04 Sojitsu Corporation 6,484 1.86 Shares Issued: Mitsubishi UFJ Trust and Banking Corporation 5,852 1.68 349,671,876

Shareholders: Composition of Shareholders: 34,258 Number of Shares Percentage of Held (Thousands) Total Shares Financial Institutions 152,672 43.7 Individuals/Other 94,968 27.2 Non-Japanese Corporations/Foreign Residents 50,307 14.4 Other Domestic Corporations 42,814 12.2 Securities Companies 8,908 2.5

TOKUYAMA CORPORATION 39 Kasumigaseki Common Gate West Tower 2-1, Kasumigaseki 3-chome, Chiyoda-ku, Tokyo 100-8983, Japan Corporate Communications & Investor Relations Department TEL: +81-3-6205-4832 FAX: +81-3-6205-4881 URL: http://www.tokuyama.co.jp/eng/

AT12080700 Printed in Japan